EME Homer City v. EPA Affirms Role of Federalism in Environmental Regulation

Some observers have touted the recent decision by the U.S. Court of Appeals for the D.C. Circuit in EME Homer City Generation v. EPA, No. 11-1302 (D.C. Cir. Aug. 21, 2012), as a victory for the electrical power, coal and natural gas industries in the U.S.

By striking down the Cross-State Air Pollution Rule (the “Transport Rule”), the court undermined a key components of EPA’s strategy to restrict emissions from the nation’s coal-fired electrical generation plants. The Transport Rule was the result of EPA’s effort to define regulatory responsibilities under the “good neighbor” provision of the federal Clean Air Act (“CAA”), which requires States to restrict emissions within their borders when they adversely affect downwind air quality. Specifically, the Transport Rule imposed new limits on emissions of sulfur dioxide (“SO2”) and nitrogen oxides (“NOx”) that would “contribute significantly to nonattainment in … any other State” of applicable national ambient air quality standards (“NAAQSs”). After EME Homer, those requirements are now off the books.

While the Transport Rule may be history, that does not mean other requirements won’t be adopted to take its place. The matter has been remanded for further action by EPA, which must continue to administer the Rule’s predecessor, the 2005 Clean Air Interstate Rule (“CAIR”), until a replacement can be developed. In the meantime, courts have upheld other components of EPA’s regulatory strategy, including the “endangerment finding” and regulations limiting greenhouse gas emissions (Coalition for Responsible Regulation v EPA, No. 09-1322 (D.C. Cir. June 26, 2012)); the one-hour NAAQS for NO2 (American Petroleum Institute v. EPA, No. 10-1079 (D.C. Cir. July 17, 2012)); and new NAAQS for SO2 (National Environmental Development Association v. EPA, No. 10-1252 (D.C. Cir. July 20, 2012)).

What may be more important than the practical consequences is the Court of Appeals’ affirmation of the principals of federalism underlying the CAA. Under these principals, States—not EPA—have the primary responsibility for carrying out the nation’s environmental laws. EPA sought to bypass the role of the States when it adopted the Transport Rule, and the Court of Appeals rightly found that attempt to be unlawful.

The 2-1 majority opinion relied on two separate arguments to justify invalidating the Transport Rule. The first focused on how to interpret the good neighbor provisions in light of decisions regarding earlier attempts to implement them. In Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000), the court approved EPA’s use of cost considerations to lower an upwind State’s obligations under EPA’s 1998 NOx Rule (the precursor to CAIR). In North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), the court addressed a challenge to CAIR and found that while EPA could consider cost under the good neighbor provisions, it could not do so to require States to clean up more than their own share of pollution in downwind jurisdictions. In EME Homer, the court found that the Transport Rule required upwind States to do exactly that, in contravention of Michigan and North Carolina.

One might disagree with the majority’s conclusion—as the Judge Rogers did in a vigorous dissent—that the Transport Rule thus imposed “massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text” of the good neighbor provision. It is harder to disagree with the majority’s separate conclusion, that by simultaneously adopting Federal Implementation Plans (“FIPs”) for the Transport Rule, EPA denied States the opportunity to implement the Rule through their own State Implementation Plans (“SIPs”), as required by the scheme of cooperative federalism on which the CAA is based.

CAA Section 110(c)(1) directs EPA to promulgate a FIP only if a State fails to submit an adequate SIP or if EPA disapproves a SIP submission because of a “deficiency” that the State does not correct. But as the Court of Appeals pointed out, a SIP cannot be deemed to be lacking for having failed to implement the good neighbor obligation until after EPA has defined the State’s obligation in the first place. In this case, EPA purported to find SIP deficiencies before it told the States what emissions reductions their SIPs were supposed to achieve. By doing so, and by going forward with the adoption of FIPs solely on that basis, EPA adopted a reading of the statute that took it “down the rabbit hole to a wonderland where EPA defines the target after the States’ chance to comply with the target has already passed.”

The D.C. Circuit is not alone in admonishing EPA to be more mindful of the line separating its role in carrying out federal environmental policy from that of the States. In Texas v. EPA, No. 10-60614 (5th Cir. Aug. 13, 2012), the Fifth Circuit repudiated EPA‘s attempt to wrest control of the Texas new source review (“NSR”) permitting program. EPA disapproved the program sixteen years after it had been submitted as a proposed revision to the Texas SIP, “unraveling” approximately 140 permits issued by Texas pursuant to state law. The administrative record reflected that EPA’s action was simply based on the Agency’s preference for a different drafting style in developing the program. According to the court, such action “disturbs the cooperative federalism” that the CAA envisions and was arbitrary and capricious.

In both EME Homer and Texas, EPA argued that courts should defer to its decisions because of its special expertise in regulating complex air quality issues. That may be true, but it also misses the point. States have such expertise, too, and there is no reason to assume that EPA’s approach is superior, particularly where EPA has previously approved relevant state plans (EME Homer) or allowed such plans to be implemented over many years without acting to disapprove them (Texas). As the D.C. Circuit previously stated, the model of federalism adopted in the CAA means that EPA cannot “force particular control measures on the states” in the first instance. See Virginia v. EPA, 108 F.3d 1297, 1410 (D.C. Cir. 1997). Where EPA acts inconsistent with this principle, its actions should continue to be rejected.